Stifel downgrades Snap stock to Sell on slowing ad revenue growth

Investing.com - Stifel downgraded Snap Inc (NYSE:SNAP) from Hold to Sell on Friday, while lowering its price target to $6.50 from $8.00, citing concerns about slowing advertising revenue growth. According to InvestingPro data, Snap, currently valued at $13.3 billion, has seen revenue growth of 13.18% over the last twelve months, though the company remains unprofitable during this period.

The investment firm noted that its research indicates Snapchat is not considered an "always-on platform" for advertising budgets, with advertisers increasingly directing test budgets elsewhere, resulting in Snap ceding market share despite a healthy overall advertising environment over the past 18 months. InvestingPro analysis shows that despite these challenges, the company maintains strong liquidity with a current ratio of 3.88, and analysts expect profitability this year.

Stifel identified three key factors behind the downgrade, including negative feedback from industry checks, primarily driven by Snap’s lack of unique audience with disposable income, and the platform’s most monetizable surfaces remaining underutilized.

The research note also highlighted that social messaging has historically been difficult to monetize, creating additional challenges for Snap’s revenue growth potential in its core business areas.

Stifel further criticized Snap’s advertising tools and solutions for failing to keep pace with competitors, creating additional hurdles for advertising budget allocation to the platform, which the firm believes will result in continued market share losses. For a comprehensive analysis of Snap’s competitive position and growth prospects, investors can access the detailed Pro Research Report available on InvestingPro, which covers key metrics and expert insights for over 1,400 US stocks.

In other recent news, Snap Inc. is navigating a series of developments impacting its financial outlook and strategic direction. Guggenheim has maintained a Neutral rating on Snap, with a price target of $8.00, as the company faces pricing challenges from its Sponsored Snaps initiative. The firm anticipates Snap’s third-quarter advertising revenue to rise by 4.6%, with total revenue growth expected at 8.4%, aligning with the company’s guidance. Citizens also reiterated its Market Perform rating, noting a decline in user engagement, with Snapchat’s U.S. time spent dropping 14% year-over-year. Mizuho initiated coverage on Snap with a Neutral rating and a $9.00 price target, highlighting potential growth but expressing caution due to weak advertising feedback. Additionally, Snapchat has introduced paid storage plans for users exceeding a 5GB content limit, affecting those who wish to maintain their content long-term. These developments reflect Snap’s ongoing efforts to address user engagement and revenue challenges in a competitive market.

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